Victor Rivera

Tue, Oct 16

Mind the Politics - ECB: the incoming challenge all the way up to the Silk Road


As Politico has recently citeda French government official “the ECB reshuffle is the only game that counts (in Europe)”. This citation is not a surprise for those following the European politics – in a year time, the current President of the European Central Bank, an Italian Mario Draghi, is going to resign from his office, attracting the most senior government ministers and the eurozone’s central bankers to bid for his role.

The job of Draghi, often namedin the Top-20 most influential people in the world by Forbes, is a life-time opportunity to join the club of the most influential people for an eight years period of time, and there is no surprise that the potential candidates are discussed in a such advance.

Jens Weidmann, once considered to be a top candidate, has lost his positions recently as Angela Merkel’s decision to back a German national for the post of the President of the European Commission will sway away the chance of another German getting the top-tier job. However, Berlin may still find a candidate, sharing the same economic vision, even though not the same passport.



A year ago, Luis de Guindos, Spanish Minister of Economy, and Philip Lane, the head of Ireland’s Central Bank, were competing for the post of the ECB Vice-President position. Luis de Guindos has won the nomination, but Lane’s ambitions to gain a job in the ECB remained. As FT reports, he may become a chief economist of the ECB, but if Sharon Donnery, a potentialhead of supervision department of the ECB, will succeed, it is unlikely the two Irish nationals will get the jobs. However, Lane is still considered to be a likely candidate, and we will have to follow if Donnery will get a new job in 2019. 

According to Bloomberg, Erkki Liikanen has one of the highestchances to become the President of the ECB. He goes along with the northern European stance on hawkish credentials, and is a former Finland’s central bank governor, as well as a former European commissioner, finance minister and ambassador. Mr. Liikanen is a veteran of the EU, having experience in both monetary and international fields. However, his age is a concern, as he would be 77 at the end of his potential term.

A French national with the considerablechances by now is Francois Villeroy de Galhau. The governor at the Bank of France, with experiences at BNP Paribas and public sector, and a fluent German-speaker, he has a vision similar to Draghi’s policy of backing continued stimulus. Benoit Coeure, another Frenchman, may be a good candidate for the northern states too – his hawkish views and a push to drop some of the crisis-era ECB measures will apply to them. However, Mr. Coeure is a sitting ECB executive board member, and an internal rule does not allow him to become the President – not if Macron will lobby him hard.

One of the underdog candidates now is Christine Lagarde, the managing director of the IMF. She is the only female on the list and has a strong background doing the IMF job. A person that has acknowledge that One Belt One Road initiative can bridge the infrastructure financing gap its partner countries have. As previously mentioned, because Luis de Guindos lacks experience in monetary policy field, appointing Ms. Lagarde who is also not a central banker, might be a challenge. However, being one of the most influentialwomen in the world now she is well trained to navigate the expanding EU economic policies.

This year and 2019 will be particularly important for Ms. Lagarde, she has the opportunity to support Emerging Markets and EU countries that might face challenges. On one side, due to a combination of interest rate increase by the FED, increased protectionism and country specific events, as head of the IMF, Ms. Lagarde would have to lead the IMF programmed in Argentine, as well as helping other Emerging Economies such as Turkey, Mexico, Brazil and Colombia, which according to Rabobank rank high on its vulnerability heatmap. On the other side, the European Economy is facing challenges in countries like Italy with a social political agenda that jeopardizes fiscal deficit and economic stability, more importantly, it might face bigger challenges as rising protectionism and vulnerabilities in emerging markets are actually happening.


Final Remarks:

In conclusion, there is no question whether next year’s election of new ECB governor is top priority in today’s European political agenda, high profile candidates are aligned and well suited for the job, but the EU is facing new challenges and it requires a central banker that not only can properly apply Macroeconomic Policy, but also a central banker that can support the fiscal policy and growth, as well as to develop new policy toolkits for the shadow banking sector which currently accounts for 40% of the EU financial System.

As Mr. Praet (Member of the Executive Board of the ECB) said the 27th of September 2018, what is the role of monetary policy? Can monetary policy be conducted in a way that reduces the likelihood of financial instability?

It all seems like it is the perfect time for Ms. Lagarde to take on a new job in 2019, and only her performance helping other economies might gave her that last push she needs to get the job.